Colin Campbell speaks with Darley after ASPO 2004

This is Julian Darley from Global Public Media in Berlin on May the 27, 2004 interviewing Dr. Colin Campbell after the 3rd annual ASPO workshop.

JD: What are your impressions of ASPO 2004 and what is the Rimini Protocol?

CC: Well I think it was a successful conference in two main regards. First, almost 300 people came to it, from all over the world, a wide spectrum of different kinds of people. And secondly, it had enormous media coverage. There were a lot of journalists, a lot of TV people, which told me the peak oil story was really becoming of prime interest to everybody. As far the content of the conference was concerned, I think one could say -- I mean it was deliberate -- the conference organizers wanted to give emphasis to gas and the wider energy issues of Germany in particular, and also to renewable energies, so in a sense it lost the prime message of peak oil. But that said, there was some quite lively debate. There was a moment when Fatih Birol from the International Energy Agency made his presentation which seemed to be based, on really … well it is hard to exactly explain what I mean. I came to conclude there were four different camps in this business: one could almost picture it almost as a medieval field of battle, in different camps and different corners of the battlefield.

I like to say in one camp are the surveyors. These people have the mission of defining, describing, identifying, and above all measuring something. Really that is their job, it is a very simple role.

And then you have the economic fundamentalists, you could call them, who have these really outdated economic principles inherited from the Industrial Revolution, when the world was indeed large and the scope for Man’s activities were at that time more or less infinite. So that you are basically living in the past with these economic principles which are very short term in their nature and so on. And so I think these people who say that there can be no shortage in an open market and their battle cry is liberalize markets - these people have become really the enemy, one has to say.

And then, there was another interesting faction, and I rather changed my position on these people. You have institutions like the International Energy Agency, and there was a member from the European Parliament there who explained this rather well. And these people, I thought they were intensely stupid in earlier years. You know, I thought, is it possible that a responsible organization of that kind could be quite so misguided and quite so far from the reality of things. But on second thoughts I realized they are deliberately trying to mislead people as much as possible. And perhaps that’s a very good thing that they do, because the reality is such a monumental effect. I mean the stock market crashes, the currencies go to hell, and probably the whole government system is put in threat, if the truth is to be revealed. So I call these people the Pretenders. They understand it fairly well perhaps, but they have to pretend it’s something different. And one hopes that behind the scenes it isn’t all pretence, that that’s for public consumption, and that one hopes in reality somewhere somebody is making some sensible plans. One has to give them the benefit of the doubt: one could say that’s what they’re doing. So I had a bit of a conflict with this Fatih Birol who apparently took a bit of offence at this interpretation of his role.

And then lastly you have the people I call the Renegades. These are senior politicians who are now out of office and being freed from the system, are able to tell the truth. And some of them do. In the audience was Yves Cochet, the former Minister of Environment of France, who has excellent ideas, and really understands things very well, and is quite forthright in what he says.

So I identified these four different groups and then I think, as far as my own contribution to this thing is concerned, I did come forth with a proposal, the so-called Rimini Protocol And the origin of this is a conference in Rimini last year and the city of Rimini has now agreed in principle to host a conference next year of oil leaders, and I prepared in fact a booklet on this whole subject to be translated to and sent to world leaders.

The proposal is that the producing countries would not produce in excess of their present depletion rate, that the annual production is a percentage of what is left, and in fact few of them can do so anyway, so there’s no particular difficulty in them agreeing to such a thing. But more important than that, is that that the importers would cut their imports to the same level and this would have the effect of keeping world prices in reasonable relationship to actual production cost and allow the Third world, the poor countries to afford at least something.

And it would stop the Middle East and whoever controls it from profiteering from shortages. And one has to say in earlier years profiteering was considered to be somewhat immoral, so there’s a morality issue enters itself there.

But more important than those general things is the result, which would mean the consumers, the importing countries would have to learn to avoid waste. All I’m saying is that if you look out the window, you see 100 cars go by in ten minutes. And I am simply asking that next year there should be 97. This is not a monumental difference and I think we can do it. They would have to save energy, be more efficient, and there’s a 100 ways in which to do that. And then in addition to that they would have to turn to renewables where they could, wind, tides, solar energies. But above all to sort of change the way of life of the age of consumerism, this whole financial system that is built around it would have to change and adapt. And I think that this protocol, if adopted , would take some of the tension of what will be otherwise be an awful shock to the system.

And the other nice feature about is that whereas Kyoto requires all the nations, especially the main polluters to agree in some manner, or at least buy their way out of it, which is a somewhat questionable approach, but at any rate this would not really require everyone to agree but just any country that adopted this principle would be effectively investing in its own future, and within a relatively short period of time, by virtue of having faced reality a little bit before they had to, would be better prepared, better organized and indeed competitive with those who continued to live in the past.

So anyway this proposal seems to be gathering a certain momentum and I think we are getting different countries to at least consider it and come on board. I don’t think it matters too much whether the thing’s actually signed at the end of the day, so long as this debate now begins to filter into the people in control. I think one incidental effect of this proposal is that one of the conditions [of it]---- the importers would license the imports. So there would be control on what was imported. There would have to be, to control the amount. And as a condition of granting this license they would then require to know from which field the oil was coming, and secondly, they would exert the right at least to be able to go and audit the reserves of this field on the grounds that they have a right to know how much longer they can expect to receive oil from this source. And so in this way this whole obscure situation of what the resource actually is would be resolved in order to calculate what the depletion rate would be. And I think that is an incidental benefit of this thing to bring a certain clarity because, I should emphasize really that all these different viewpoints are made possible by the atrocious condition of the public data. If the real data was made available to everybody, the conclusions would be self-evident --- there would be no need to discuss it at all, it would be incredibly obvious. But there all these different factions are made possible by the extremely unreliable data so anybody can say more or less whatever he wants.

JD: What is the real significance of the recent Royal Dutch Shell reserve write-downs?

CC: The Shell incident has really got quite interesting elements to it, and I think it really says a lot about many aspects of things. You see, Shell regarded itself as a very superior kind of company, you know, Shell was the cream of the cream, at least in their eyes. I’m sure the situation arose, as in all companies, of always under-reporting what they found. This was the standard way in which all companies worked. So you have a financial group whose job it was to make an annual report to the company. And they would report as much reserves as they needed to report to deliver a satisfactory financial result. So this had been going on for years, and it was entirely standard practice. And so, if they needed a little bit more reserves somewhere for their annual report, well, the head office would call their man in Nigeria and say well, we need a bit more this year.

And in the past there was no problem with doing this, there was a huge stock of under-reported reserves that they knew existed everywhere in a sort intangible ill-defined way, they just always knew there was a bit more than they claimed. This was the traditional way the industry worked. And so Shell being Shell, it was one of the few major companies that didn’t merge with anybody else. Because with their superbia mentality, why would they soil themselves with mixing themselves up with a lesser entity? Whereas BP and Texaco and Chevron and ExxonMobil, they all overcame this little difficulty that’s been unfolding for them all, by merging, and in the course of merging completely confused the reserves and the accounts, and everything else, and in practice the lesser of the partners to the merger was absorbed by the stronger party who effectively bought the reserves of the lesser one.

So all the other companies overcome this fact that they were running out of this stock of under reported reserves but poor old Shell was still trying to do it in the ground, not on Wall St.

Another aspect of this is that Shell had a rather delegated structure, so the man in Nigeria had a lot of autonomy over what he could do. So you know they are all part of this group, this club, the affiliates have their friends in the head office and they all work together in this club-like environment. But I suppose over the years it began slowly to become evident that well, Nigeria just didn’t have anymore on board you know. And then I think the oil in the ground was probably secure enough, I’m sure the reserves as estimated were genuine technical reserves. But they probably weren’t strictly commercial at that time.

In places like Nigeria there must be many commercial obstacles and contracts are insecure and hopes are not always met and that kind of thing. And so that in a strict SEC meaning they were sort of over-reporting what they had. And gradually they became aware of this. And then they tried to hope it would somehow solve itself and say let’s put it off till next year, a perfectly reasonable reaction actually. And slowly they found they couldn’t put it off till next year. And then of course they start accusing each other of having failed and in typical management behavior always finding someone to blame for something going wrong. And they started throwing mud at each other and eventually of course the investment community which really understands nothing about anything in particular went into a complete spasm over this readjustment and it cost the poor old chairman his job and you know the whole pack of cards unravelled.

I think in a certain way Shell was actually more honest than other people who hid it through merger and devious accounting formulae. So it’s a sort of an irony in a way. But it does underline at the end of the day that the companies no longer have unreported reserves and that’s no longer surprising since the peak of discovery for the world was in 1964. The world as a whole has been finding less than it used since 1981. So what we see in Shell is an echo of what is facing the whole wide world on the widest scale.

If Saudi Arabia were subject to the same stock exchange rules that Shell was, it would face a mammoth downgrading of Saudi reserves.

JD: Are there any similarities between Shell and Saudi Arabia?

CC: Well Saudi Arabia is a very complicated story of course, as we all we know. Saudi Arabia announced an enormous increase in their reserves in I think it was ‘92. They have not changed since. But, well you know production eats into reserves unless you find something to compensate for it. So, we’ve long suspected there was something wrong with their reported reserves and it now becomes evident through contacts with engineers who know the details of those fields there and so on, it now becomes clear that Saudi Arabia has been claiming what it has found, not what is remaining. And that’s a huge shock, really that’s a lot of oil. And so are all the other Middle East countries.

And this is actually surprising --- in the last Oil and Gas Journal the ex-- the chief ex -- and I stress ex, because he was free then to speak -- in Saudi Aramco responded to what we’ve been saying in ASPO. Amazing that Saudi Arabia would find it necessary to respond to what we’ve been saying. The man said they had 130 billion barrels of proved developed reserves. Well this is half of what they had claimed!

And this undeveloped reserve is probably nothing more than in the eye, the glint in the eye of some explorer or some unconfirmed discovery somewhere. In any case it’s small, and the long and short of it is, they cannot increase their production even if they wanted to.

So the whole Middle East is running at full capacity. That explains why the price of oil is going through the ceiling. There may be speculative interests at work that can give a little volatility in the short term, but in the longer term the price of oil has to go up until demand is cut, which means recession. So I think we enter this volatile period over the next few years. It started in 2000 when we had a little price shock, a recession, then recovered.

Now we’re having a bigger price shock, which I suspect will lead to a bigger recession. And over the next few years we see this boom and bust kind of situation, which incidentally has always been a classic phenomenon of the oil business, and it’s not unrelated.

JD: The Saudis say they have much more oil yet to be discovered. What do you think of that suggestion?

CC: The Saudis have drilled a large number of wells, and I think even the Sauds would always develop the larger ones first. So the biggest field in the world is Ghawar, with 80 billion in it perhaps, you step outside from this trend to Safaniya with 35 perhaps, Hanifah about 12 and Shaybah 15, and you come on down. If they develop the big ones first, which one must assume they did, you are down to well, still nice oilfields but of a modest scale, and so I suppose the other discoveries they made have made are smaller by orders of magnitude.

I am sure there are more fields to find, of course there are, and they’ve drilled a lot of wells, and who knows if these are if these are genuine discoveries or not, but it’s quite evident that this doesn’t come close to the past.

JD: It is claimed that there is much more oil to be discovered in Iraq. Do you think this is true?

CC: Well, Iraq -- In all oil provinces there is a prime trend and if you’re in the prime trend that’s where the oil is. In the case of Iraq there’s three giant fields within this thing. There’s Kirkuk, found in 1927; East Baghdad found I think in 1954 if I’m not wrong about this, Rumalia in the south found in about 1978.

So the bulk of Iraq’s oil is in these three big ones, and then there are smaller ones in this prime trend. But there’s a large shelf to the west which is relatively unexplored though it does have a lot of wells on it and it’s quite evident it’s outside the main oil belts. So simply by looking at a large stretch of empty territory is not to assume that it’s full of oil.